Complex economies have a lateral escape from the poverty trap

Aug 28, 2017

E. Pugliese, G. L. Chiarotti, A. Zaccaria, L. Pietronero

Abstract

We analyze the decisive role played by the complexity of economic systems at the onset of the industrialization process of countries over the past 50 years. Our analysis of the input growth dynamics, considering a further dimension through a recently introduced measure of economic complexity, reveals that more differentiated and more complex economies face a lower barrier (in terms of GDP per capita) when starting the transition towards industrialization. As a consequence, we can extend the classical concept of a one-dimensional poverty trap, by introducing a two-dimensional poverty trap: a country will start the industrialization process if it is rich enough (as in neo-classical economic theories), complex enough (using this new dimension and laterally escaping from the poverty trap), or a linear combination of the two. This naturally leads to the proposal of a Complex Index of Relative Development (CIRD) which shows, when analyzed as a function of the growth due to input, a shape of an upside down parabola similar to that expected from the standard economic theories when considering only the GDP per capita dimension.